Texas Tax Exempt Organizations: Criteria and the Application Process.

TEXAS: Over the next few blogs we will take look at Sales to and Purchases by Tax Exempt Organizations.

For an organization to be granted exemption from paying state sales taxes, there is criteria that must be met.

  1. The parent organization must recognize the organization as a subordinate under the group exemption.
  2. The group exemption meets the requirements for exemption from state taxes.
  3. The group exemption has been established and is recorded with the State Comptroller.

The parent group’s federal group exemption may be classified under various sections of the 501(c) Internal Revenue Code. These are 501(c)(2), (3), (4), (5), (6), (7), (8), (10), (16), (19) and (25). Other possible categories are; religious, educational or charitable.

If the parent organization’s 501(c) exemption has not been established, a copy of the IRS ruling letter for the 501(c) group exemption and four digit group exemption number must be submitted to the Comptroller.

In addition to organizations that are granted exemption, legally non-taxable entities do not need to apply for exemption and are instead granted it by law. Examples of these entities are, the US Government, State and local governments and Federal Credit Unions established under 12 Unites States Code. 1768 Public schools, colleges and universities are exempt from sales tax and hotel tax. School’s parent-teacher organizations are not covered and therefore must apply for exemption.

The application for exemption can be found online here: Exemption Forms Index

The correct application must be completed and should include a letter recognizing the organization as a subordinate under the group exemption, the basis of exemption and the date the organization as recognized as a subordinate.

More information can be found at Guidelines to Texas Tax Exemptions (96-1045)

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